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Every parent wants to give their children the best start in life—whether it’s a quality education, financial stability, or a pathway to homeownership. But how do you balance supporting your child financially while also securing your own future?
Overview
In this guide, we explore how to give your family’s next generation a financial head start. From smart savings strategies to unlocking the power of long-term growth, we break down how parents can set their kids up for financial success—without sacrificing their own future. Whether you’re considering investment funds, making regular contributions, or focusing on growing your wealth first, this is your go-to guide for investing in your child’s future and building generational wealth the right way.
At Lighthouse Financial, we often work with parents who want to make smart, strategic decisions about investing in their child’s future. Here’s how you can do the same.
Ways to Invest in Your Child’s Future
When it comes to financial support, there are a few common ways parents help their children get ahead:
Education Costs: Contributing to private schooling, university tuition, or trade certification programs.
First Car or Overseas Experience: Helping fund a vehicle or an overseas experience (OE) can provide independence and valuable life experiences.
First Home: Assisting with a deposit or co-owning a property can help children enter the housing market sooner.
Generally, parents take one of two approaches:
Regular Contributions Over Time – Setting up an automatic payment into a dedicated investment fund while the child is young.
Building Wealth First, Then Gifting Later – Focusing on growing personal assets and providing financial support when the time is right.
Investing vs. Saving: Where to Put Your Child’s Money
One of the biggest mistakes parents make is keeping their child’s investment in cash. While savings accounts and term deposits feel safe, they generate minimal returns compared to long-term investments.
A diversified investment approach is critical. Instead of cash, consider high-growth investment funds that allow for long-term capital appreciation.
These funds offer diversified exposure to the share market, allowing money to grow at a much faster rate than traditional savings.
When NOT to Invest for Your Kids
Before you start investing for your child, ensure you’re in a solid financial position yourself. If you have high-interest debt or struggle with saving, prioritizing your own financial health is crucial. Remember:
You shouldn’t sacrifice your own retirement for your child’s future. If you give away too much, you might become financially dependent on your children later.
Don’t give too much too soon. While supporting your child is great, excessive financial assistance can hinder their ability to develop good financial habits.
The Concept of a Warm Inheritance
A ‘cold inheritance’ is when children inherit wealth after their parents pass away. A ‘warm inheritance’ is when parents provide financial support while they are still alive, often when it is most impactful.
For example, instead of leaving your child a lump sum at 60, you may choose to give them a financial boost earlier—when they are buying their first home, starting a business, or beginning their investment journey. This approach requires careful financial planning to ensure you don’t compromise your own security.
Teaching Kids Good Financial Habits
One of the best ways to set your child up for financial success is by teaching them good money management skills. Whether or not you can contribute financially, you can still be a great role model by:
Sticking to a budget and discussing financial decisions openly.
Encouraging them to save a portion of their pocket money or first paychecks.
Teaching them about investing through hands-on experience.
Demonstrating responsible debt management and smart spending habits.
What’s the Best Investment Vehicle for Kids?
While some parents consider KiwiSaver, it may not be the best option for children due to its restrictions. Instead, an unlocked investment fund that allows access before retirement may be a better fit.
A good strategy includes:
Setting up an automatic payment into a diversified, high-growth fund.
Avoiding cash investments that won’t keep up with inflation.
Keeping investments long-term and resisting frequent withdrawals.
Key Takeaways:
Start early and let compound interest work its magic.
Choose high-growth investments over cash savings.
Prioritize your own financial stability before giving money away.
A warm inheritance can be more impactful than a cold one.
Being a financial role model is just as important as financial contributions.
Next steps
What are your thoughts on investing in your child’s future? Have you set up a financial plan to support them?
For tailored financial advice on securing your family’s future, reach out to our wealth team today.
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For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
